Ramsey Policy with Third Order Perturbation


#1

Hi! Can we find Ramsey Policy (which requires the second-order perturbation in dynare) in a model economy that is hit by external shocks which require third-order perturbation?

Thanks for your time to respond to my question.

Niraj


#2
  1. No, Dynare does currently not support this.
  2. If you have shocks that require a third order solution, you cannot use a second order perturbation to compute welfare.

#3

Thank you Professor for answering! That means, we need to follow IRFs and Simulated Moments to study the behavior of an economy due to the shocks that requires a third order solution? One of my professors told me to check if dynare++ can find welfare in case of uncertainty shocks. Could you please answer me whether switching to dynare++ can accomplish the goal?

Thank you once again for responding!

Niraj